## _wp1480

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---

### I. Background and introduction
- Recovery after the 2008 collapse of Lehman Brothers has been "anemic" in advanced economies; emerging market and developing countries have been growing substantially faster but many are expected to slow.
- Global growth outlook has been "revised downwards substantially since 2011" and is "subject to substantial downside risks (IMF, 2013a)."
- Europe:
  - European Union GDP growth is estimated to be about zero in 2013.
  - Europe experienced negative growth at end-2011; policy actions and ECB measures helped stabilize the euro area with growth "forecast to return in 2014."
  - Risks: re-emergence of financial stress; protracted slower growth due to public debt and private deleveraging; growing "fears of deflation."
- Emerging markets:
  - Growth has slowed for structural and cyclical reasons; risk of further sharp slowdowns in major emerging markets (BRICS).
  - Private investment in the BRICS "has repeatedly surprised on the downside" and could do so again "by a substantial margin."
- Scope and emphasis:
  - Focus on effects of global growth on export volumes from the Middle East and Central Asia (MCD).
  - Separate impacts estimated for Maghreb, Mashreq, GCC, CCA; alternative grouping as MENAP oil importers and oil exporters.
  - Core analysis on non-petroleum exports; limited discussion of services and oil exports.
- Rationale:
  - Trade channel paramount for many MCD countries: between start of 2008 and early 2009 world trade fell by 15 percent (almost four times the change in global GDP).
  - MCD region’s share of goods exports destined to Europe is higher than that of any region except Europe itself.
  - Remittances important relative to other regions but trade is the dominant channel; financial exposures generally limited.

### II. Data, methodology, and key empirical estimates
- Data sources and scope:
  - Annual trade data and panel of approximately 150 countries from 1994-2009.
  - IMF Direction of Trade Statistics for goods; UN COMTRADE used for robustness and to generate non-petroleum exports (total minus SITC code 33).
  - Trade data deflated in U.S. dollars using unit values of exports; GDP from World Economic Outlook 2012 database.
  - Geodesic distances from CEPII; aggregate demand components from WEO April 2012; durable goods data from WEO October 2010.
  - Monthly bilateral goods flows from Global Trade Atlas for January 2008 to June 2013; non-petroleum goods defined as excluding HS code 27.
- Modeling approach:
  - Collapsed gravity model (aggregate exports) rather than bilateral gravity.
  - Panel econometric techniques with an Autoregressive Distributive Lag (ARDL) specification for all goods, non-petroleum goods, and services.
  - Core ARDL includes exporter fixed effects, log(exports), log(GDP) of exporter, ROW GDP (weighted by distance), lagged terms; long-run elasticity derived from short-run and lagged coefficients.
  - Alternative specifications (GMM, first differences) used for robustness.
- Key elasticity estimates (short run and long run):
  - Short-run elasticities:
    - All goods exports (including oil): 2.02
    - Non-petroleum goods exports: 3.3 (one standard error confidence bands approximately 2.3 and 4.3)
    - Services exports: 1.17 (range 0.94 to 1.37)
  - Long-run estimates:
    - Goods exports: "close to 1" in preferred specifications
    - Services long-run elasticity: less than unity in preferred specifications

### III. Trade patterns and geographical exposures in MCD
- Regional grouping used:
  - Maghreb: Algeria, Libya, Mauritania, Morocco, Tunisia.
  - Mashreq: Egypt, Jordan, Lebanon, Syria.
  - GCC: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates.
  - CCA oil exporters: Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan.
  - CCA oil importers: Armenia, Georgia, Kyrgyz Republic, Tajikistan.
  - Other: Afghanistan, Djibouti, Iran, Iraq, Pakistan, Sudan, Yemen.
  - MENAP oil exporters: GCC and Algeria, Iran, Iraq, Libya, Yemen.
  - MENAP oil importers: Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, Tunisia.
- Europe as destination:
  - "Europe accounts for almost a third of all MCD goods exports" and is "the largest destination for most sub-groups."
  - MENAP: Europe is destination for "30 percent of goods export volumes."
  - Maghreb non-oil exports: Europe accounts for "more than two thirds."
  - CCA oil exporters: main non-oil export destinations are "Europe, Russia and China."
  - CCA oil importers: "Europe alone receives the largest share of exports."
- Changes over time:
  - China and the rest of Asia have become relatively more important:
    - Share of exports to China, 2007–11: GCC "5 percent of total exports"; CCA oil exporters "20 percent of total exports."
  - Declines in MCD non-oil exports to Europe: Mashreq shares declined from "almost 30 percent to 20 percent" (1998-02 to 2007-11); CCA oil exporters from "33 percent to 23 percent."
- Selected non-petroleum goods shares (2007–11, Table 1 excerpts):
  - Maghreb: Europe "68.0", China "1.9", MCD "10.5", Total "30.1"
  - Mashreq: Europe "19.7", China "1.6", MCD "51.2", Total "78.8"
  - GCC: Europe "10.4", China "5.0", MCD "42.8", Total "84.6"
  - Other MENAP: Europe "20.4", China "7.7", MCD "29.2", Total "71.9"
  - CCA oil exporters: Europe "23.2", China "20.2", MCD "17.8", Total "56.5"
  - CCA oil importers: Europe "37.0", China "1.8", MCD "25.2", Total "61.2"
- Note: Deficient bilateral services data precludes detailed geographical composition for services; tourism likely sourced substantially from Europe, especially for the Maghreb.

### IV. Historical impact: Lehman crisis and goods trade response
- Collapse of non-oil exports during the Lehman crisis:
  - From July 2008 to February 2009, MCD’s non-oil exports were cut in half.
  - Regional declines in that period:
    - MENAP oil exporters: fell by 55 percent
    - MENAP oil importers: fell by 35 percent
    - CCA: fell by 41 percent
- Global and regional contractions:
  - Following Lehman (September 2008), world output fell by "0.6 percent (year-on-year) in 2009."
  - Global volume of traded goods and services fell "by over 10 percent."
  - MCD goods and services exports volume fell "by almost 7 percent" while value fell "by almost a third."
  - From July 2008 (peak) to February 2009 (trough) nominal value of goods exports fell by:
    - MENAP Oil Importers: "40 percent"
    - MENAP Oil Exporters: "60 percent"
    - CCA: "70 percent"
- Oil markets and exports:
  - Annual average oil price fell "by a third between 2008 and 2009."
  - Oil exporters in Middle East and North Africa: export volumes "fell by almost 10 percent."
  - GCC excluding the biggest producer: exports fell by "11.5 percent."
  - CCA oil exporters did not reduce oil exports, but overall MCD oil export volumes fell by "8 percent."
- Why goods trade response was so large:
  - Demand composition effects: contraction in durables much larger than aggregate GDP; during 2009 the average change in durables across 34 countries was almost five times the average change in GDP; global average elasticity of durables to GDP since mid-1990s has been about three.
  - Intermediates: majority of global goods trade; mixed evidence on role of vertical linkages.
  - Trade costs: crises raise trade costs; modest increase in protectionism; trade finance largely preserved due to policy efforts.
- Services trade resilience:
  - Services trade is more resilient than goods trade; demand for services fell by less than other sectors.

### V. Estimated elasticities and interpretation (summary)
- Short-run estimates:
  - All goods including oil: 2.02
  - Non-petroleum goods: 3.3 (approximate one-standard-error band 2.3 to 4.3)
  - Services: 1.17 (range 0.94 to 1.37)
- Long-run:
  - Goods exports long-run elasticities approach unity in preferred specifications.
  - Services long-run elasticity is less than unity.
- Composition effects:
  - Durables play a large role; implied elasticity of exports to durables demand alone is about one quarter (all goods) to almost one half (non-petroleum).
  - Durables comprise approximately 10 percent of GDP; change in durables was approximately ten times the change in the rest of GDP during crises.
- Cross-region heterogeneity:
  - No robust statistically significant evidence that elasticities differ systematically across MENAP, CCA, or importing regions; differences in exposure driven mainly by geographical export shares.

### VI. Simulations of global GDP shocks on non-oil exports — scenarios and impacts
- General interpretation:
  - An evenly-distributed fall in global GDP of 1 percent would reduce MCD non-petroleum exports by 3.3 percent in the short run and 1.06 percent in the long run.
  - Geographic distribution of GDP losses matters because export shares to affected regions differ across sub-regions.
- Simulation design:
  - Combine regression short-run coefficients with vectors of trading-partner GDP contractions and export-share matrices.
  - Coefficients represent cumulative impacts up to two years (scenarios) and up to four years (realized forecast revisions).
  - Regional approximations: Europe (listed 12 countries), BRICS (Brazil, Russia, India, China, South Africa), Asia (Indonesia, Japan, Korea), Other (Argentina, Canada, Australia, Mexico, Turkey).
- A. Euro area shocks
  - Scenario 1 (Weak growth in Europe, EUROMOD / April 2013 WEO):
    - Europe’s growth could fall by ½ percent per year over 5 years.
    - European GDP would be 1.1 percent lower than baseline in the second year; cumulative loss over 2 years would be 1.7 percent.
    - Cumulative global GDP loss over two years would be ½ percent.
    - Short-run non-oil export impacts (examples, Total World cumulative):
      - MENAP: Year 1 -0.5; Year 2 -1.0; Cumulative -1.5
      - MENAP oil importers: Year 1 -0.6; Year 2 -1.5; Cumulative -2.1 (short-run column)
      - Maghreb: Year 1 -1.4; Year 2 -3.1; Cumulative -4.5
      - CCA: Year 1 -0.5; Year 2 -1.0; Cumulative -1.5
    - Long-run examples:
      - MENAP long run cumulative: -0.4
      - Maghreb long run cumulative: -1.4
      - CCA long run cumulative: -0.6
    - Parameter uncertainty (one-standard-error bands):
      - MENAP cumulative: -1.9 to -1.0
      - Maghreb: -3.1 to -5.8
      - CCA: -1.3 to -2.3
  - Scenario 2 (Acute re-emergence of financial stress in euro area, GIMF / October 2012 WEO):
    - Europe GDP: 2.8 percent lower than baseline in the first year; second year also 2.8 percent below baseline; cumulative output loss of 5.6 percent over two years.
    - Global GDP: falls by 1.1 percent in the first year; cumulative output loss of 2.2 percent over two years.
    - Short-run non-oil export impacts (Total World cumulative, examples):
      - MENAP: Year 1 -3.0; Year 2 -2.9; Cumulative -6.0
      - MENAP oil importers: Year 1 -4.4; Year 2 -4.3; Cumulative -8.8
      - Maghreb: Year 1 -7.7; Year 2 -7.6; Cumulative -15.4
      - CCA: Year 1 -3.7; Year 2 -3.6; Cumulative -7.3
    - Long-run examples:
      - MENAP long run cumulative: -1.9
      - Maghreb long run cumulative: -4.9
      - CCA long run cumulative: -2.3
    - Elasticities implied:
      - MENAP: short-run elasticity w.r.t. European GDP approximately 0.9–1
      - Maghreb: elasticity of 2¾ with respect to European GDP
      - CCA: elasticities approximately 1.1–1.3
    - Services and oil values:
      - Assuming services export shares to Europe equal non-oil goods:
        - First-year CCA services impact: -1¼ percent
        - First-year MENAP services impact: -1 percent
        - If Maghreb service exposures equal non-oil goods: first-year services impact: 2¾ percent
      - GIMF estimates oil price would fall about 10 percent in the first year under the acute euro-area stress scenario.
- B. BRICS shock (April 2013 WEO scenario)
  - Scenario description:
    - Investment 10 percent below forecast in the BRICS plus capital outflows reduce BRICS output by 3½ percent in the first year and by more than 4 percent in the second year.
    - Spillovers lead to GDP loss in non-BRICS regions of approximately 1 percent in the first year.
    - Aggregate Total (World) Year 1: -2.0; Year 2: -2.3; Cumulative: -4.2 (BRICS + indirect effects)
  - Short-run non-oil export impacts (Total World cumulative, examples):
    - MENAP: Year 1 -2.9; Year 2 -3.3; Cumulative -6.2
    - MENAP oil importers: Year 1 -3.1; Year 2 -3.5; Cumulative -6.6
    - MENAP oil exporters: Year 1 -2.8; Year 2 -3.2; Cumulative -6.0
    - GCC: Year 1 -3.0; Year 2 -3.5; Cumulative -6.5
    - Maghreb: Year 1 -3.4; Year 2 -3.8; Cumulative -7.2
    - Mashreq: Year 1 -2.5; Year 2 -2.8; Cumulative -5.4
    - CCA: Year 1 -5.7; Year 2 -6.7; Cumulative -12.4
    - CCA oil importers: Year 1 -4.1; Year 2 -4.7; Cumulative -8.8
    - CCA oil exporters: Year 1 -6.0; Year 2 -7.0; Cumulative -13.1
  - Long-run examples:
    - MENAP long run cumulative: -2.0
    - CCA long run cumulative: -4.0
  - Elasticities:
    - CCA short-run elasticity: approximately 1½
    - CCA long-run elasticity: approximately 1/3 (driven by CCA oil exporters)
    - MENAP short-run elasticity: about 3/4; long-run about 1/4
  - Oil and services:
    - EUROMOD suggests oil prices could fall by 20 percent in the first year.
    - Services exports could fall by 2⅓ percent in the first year under a uniform global GDP loss assumption.
    - Assuming same geographical exposures as non-oil goods:
      - Services impact for many MENAP countries roughly same as non-oil goods.
      - Services impact for CCA around 4 percent.
- C. Realized downward revisions to global outlook (October 2013 WEO vs October 2010 WEO)
  - Global GDP growth estimates/projections were on average 1 percent per annum lower in the more recent edition, implying a cumulative GDP loss of 9½ percent over 2011-2014.
  - Europe: cumulative GDP loss of 10½ percent for 2011-2014.
  - BRICS: cumulative GDP loss of 16½ percent for 2011-2014.
  - Implications for MCD non-petroleum exports (Total World cumulative, 2011-2014):
    - CCA cumulative short-run loss: 32.7 percent of a year’s exports (equivalently 4 months’ exports); regression uncertainty range: 23 to 43 percent.
    - MENAP cumulative short-run loss: 18.7 percent (range 13–24 percent).
    - Maghreb cumulative short-run loss: 31.2 percent (mostly due to Europe revisions).
  - Long-run (Total World cumulative, 2011-2014) examples:
    - MENAP: -6.0
    - Maghreb: -10.0
    - CCA: -10.5
    - CCA oil exporters: -11.0

### VII. Key takeaways, implications, and limitations
- Main drivers:
  - Export losses are driven primarily by the geographical distribution of exports (export shares to affected regions) rather than by differing elasticities across sub-regions.
- Magnitudes:
  - Euro-area shocks can produce acute short-run export losses, especially for the Maghreb (first-year estimated impacts up to -7½ percent and two-year cumulative impacts exceeding -15 percent under the acute stress scenario).
  - BRICS slowdown scenarios produce particularly large impacts on the CCA (first-year non-oil export declines up to -6 percent and two-year cumulative losses ~ -13 percent for CCA oil exporters).
  - Realized downward revisions to global growth (2011-2014) imply very large cumulative short-run export losses: CCA ~32.7 percent; Maghreb ~31.2 percent; MENAP ~18.7 percent.
- Secondary channels and sectoral effects:
  - Services exports and oil export values would decline alongside non-oil goods exports in the scenarios:
    - Estimated oil price falls of about 10 percent (acute euro-area stress) and about 20 percent (BRICS slowdown) in first year scenarios.
    - Services are more resilient; responsiveness of services to GDP shocks is about one third that of non-oil goods under the assumption services geographic shares equal non-oil goods.
  - Remittances important for oil-importing countries; financial links are limited with exceptions.
- Aggregate demand and vulnerability:
  - A given change in exports has the biggest effects on countries with high non-oil export-to-GDP ratios and limited buffers.
  - CCA oil importers: non-oil goods and services exports about a quarter of GDP; many have not rebuilt buffers post-crisis.
  - MENAP oil importers: non-oil goods and services exports approximately one third of GDP; many have run down reserves and have output gaps.
  - Calibrations indicate:
    - Growth ½ percent below baseline in Europe would reduce MCD GDP by less than 0.1 percent in the first year.
    - A BRICS shock (about 3½ percent) would result in a GDP loss of about ½ percent in the first year for MCD oil importers.
    - EMERGMOD indicates MCD oil exporters’ GDP loss would be slightly above 1 percent in that BRICS scenario.
- Limitations and potential understatement:
  - Estimates are conservative; impacts would be larger if:
    - Export response matched that of the previous crisis rather than the average trade responsiveness (non-oil export response estimated at 3.3; a Lehman-like response could be larger).
    - Intra-regional trade declines (not fully captured) amplify effects, important for many Mashreq and GCC countries.
    - Additional falls induced by other parts of the world (not explicitly modeled due to data deficiencies) occurred.
  - Gravity-based regressions do not control for exchange rate or price competitiveness effects; future work could model export demand and supply as functions of GDP, prices (effective exchange rate), and other variables.

*Source: Excerpt from IMF working paper content unit: _wp1480.*

### References................................................................................................28

### _wp1480 - References................................................................................................28

### I. Background and introduction
- Recovery after the 2008 collapse of Lehman Brothers has been "anemic" in advanced economies; emerging market and developing countries have been growing substantially faster but many are expected to slow. Global growth outlook "revised downwards substantially since 2011" and "subject to substantial downside risks (IMF, 2013a)."
- Europe:
  - Experienced negative growth at end-2011; "European Union GDP growth is estimated to be about zero in 2013."
  - Vulnerable to fiscal crises in Greece, Spain and others; policy actions and ECB measures helped stabilize the euro area with growth "forecast to return in 2014."
  - Risks: re-emergence of financial stress; protracted slower growth due to public debt and private deleveraging; growing "fears of deflation."
- Emerging markets:
  - Growth has slowed for structural and cyclical reasons; risk of further sharp slowdowns in major emerging markets (BRICS).
  - Private investment in the BRICS "has repeatedly surprised on the downside" and could do so again "by a substantial margin."
- Scope and emphasis of the paper:
  - Focus on effects of global growth on export volumes from the Middle East and Central Asia (MCD).
  - Separate impacts estimated for Maghreb, Mashreq, Gulf Co-operation Council (GCC), Caucasus and Central Asia (CCA); alternative grouping as MENAP oil importers and oil exporters.
  - Core analysis on non-petroleum exports; limited discussion of services and oil exports.
- Rationale:
  - Trade channel paramount for many MCD countries: between start of 2008 and early 2009 world trade fell by 15 percent (almost four times the change in global GDP).
  - MCD region’s share of goods exports destined to Europe is higher than that of any region except Europe itself.
  - Remittances important relative to other regions but trade is the dominant channel; financial exposures generally limited (Behar, 2013).

### II. Literature and channels of spillovers
- Gravity and trade-income elasticity:
  - Established literature (Tinbergen, 1962; Head and Mayer, 2013) finds countries trade more with physically and culturally closer partners; elasticity of exports to trading partner income often estimated at unity.
  - This finding conflicts with observations from the global financial crisis; evidence that trade grew by more than income (Irwin, 2002).
- Other channels linking MCD to world shocks:
  - Remittances: Maghreb and CCA linked to Europe and Russia (Abdih and others, 2012).
  - Finance and FDI: links limited but mattered after global financial crisis.
  - Oil prices: fell substantially in 2009 with differential impacts on oil exporters vs. importers.
- Gaps in formal spillover analysis:
  - Global models (GEM, 35-S, EMERGMod) provide limited MCD disaggregation; some models indicate:
    - A BRICS shock could reduce GDP in MCD countries by "about ½ percent to 1 percent."
    - Effects of slow European growth would be "modest" (Behar, 2013).
  - Need for greater variation across MCD countries; references to specific country-level or regional models (Cashin, Mohaddes and Raissi (2012); Albino‑War and others (2012)).

### III. Data, methodology, and key empirical estimates
- Data sources and scope:
  - Annual trade data and panel of approximately 150 countries from 1994-2009.
  - IMF Direction of Trade Statistics for goods; UN COMTRADE used for robustness and to generate non-petroleum exports (total minus SITC code 33).
  - Trade data deflated in U.S. dollars using unit values of exports; GDP from World Economic Outlook 2012 database.
  - Geodesic distances from CEPII; aggregate demand components from WEO April 2012; durable goods data from WEO October 2010.
  - Monthly bilateral goods flows (including oil-derived products) from Global Trade Atlas for January 2008 to June 2013; non-petroleum goods defined as excluding HS code 27.
- Modeling approach:
  - Use of collapsed gravity model (aggregate exports) rather than bilateral gravity, due to focus on partner GDP and lack of bilateral services data.
  - Panel data econometric techniques to estimate short-run and long-run responses of trade flows to trading partner GDP.
- Key elasticity estimates (short run and long run):
  - Short-run elasticities:
    - All goods exports: "about 2"
    - Non-oil goods exports: "3.3"
    - Services exports: "1.2"
  - Long-run estimates:
    - "Close to 1 for goods exports" consistent with formal gravity models.
- Use of regressions in simulations:
  - Combine regression results with predicted slowdowns in major trading partners from existing models and WEO projections to simulate impacts of acute euro area crisis, moderate European growth, or slower BRICS growth.

### IV. Trade patterns and geographical exposures in MCD
- Regional grouping used for analysis:
  - Maghreb: Algeria, Libya, Mauritania, Morocco, Tunisia.
  - Mashreq: Egypt, Jordan, Lebanon, Syria.
  - GCC: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates.
  - CCA oil exporters: Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan.
  - CCA oil importers: Armenia, Georgia, Kyrgyz Republic, Tajikistan.
  - Other: Afghanistan, Djibouti, Iran, Iraq, Pakistan, Sudan, Yemen.
  - Simulation classification also uses MENAP oil exporters (GCC and Algeria, Iran, Iraq, Libya, Yemen) and MENAP oil importers (Afghanistan, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria, Tunisia).
- Europe as destination:
  - "Europe accounts for almost a third of all MCD goods exports" and is "the largest destination for most sub-groups."
  - MENAP: Europe is destination for "30 percent of goods export volumes."
  - Maghreb non-oil exports: Europe accounts for "more than two thirds" (Table 1).
  - CCA oil exporters: main non-oil export destinations are "Europe, Russia and China."
  - CCA oil importers: "Europe alone receives the largest share of exports."
- Changes over time:
  - China and the rest of Asia have become relatively more important. Example: share of exports to China in 2007–11:
    - GCC: "5 percent of total exports"
    - CCA oil exporters: "20 percent of total exports"
  - Declines in MCD non-oil exports to Europe: e.g., for Mashreq shares declined from "almost 30 percent to 20 percent" (1998-02 to 2007-11); for CCA oil exporters from "33 percent to 23 percent."
- Table 1 (Geographical distributions of exports of goods, 2007–11) — selected figures for Non-petroleum goods (period averages):
  - Maghreb: Europe "68.0", China "1.9", MCD "10.5", Total "30.1"
  - Mashreq: Europe "19.7", China "1.6", MCD "51.2", Total "78.8"
  - GCC: Europe "10.4", China "5.0", MCD "42.8", Total "84.6"
  - Other MENAP: Europe "20.4", China "7.7", MCD "29.2", Total "71.9"
  - CCA oil exporters: Europe "23.2", China "20.2", MCD "17.8", Total "56.5"
  - CCA oil importers: Europe "37.0", China "1.8", MCD "25.2", Total "61.2"
- Note: Deficient bilateral services data precludes a detailed geographical composition analysis for services; tourism likely sourced substantially from Europe, especially for the Maghreb.

### V. Impact of the Lehman crisis on MCD exports
- Global and regional contractions:
  - Following Lehman (September 2008), world output fell by "0.6 percent (year-on-year) in 2009."
  - Global volume of traded goods and services fell "by over 10 percent."
  - MCD goods and services exports volume fell "by almost 7 percent" while value fell "by almost a third."
  - From July 2008 (peak) to February 2009 (trough) nominal value of goods exports fell by:
    - MENAP Oil Importers: "40 percent"
    - MENAP Oil Exporters: "60 percent"
    - CCA: "70 percent"
- Oil markets:
  - Annual average oil price fell "by a third between 2008 and 2009."
  - Export volumes:
    - Oil exporters in Middle East and North Africa: export volumes "fell by almost 10 percent."
    - GCC excluding the biggest producer: exports fell by "11.5 percent."
    - CCA oil exporters did not reduce oil exports, but overall MCD oil export volumes fell by "8 percent."
- Interpretation:
  - Both price and volume channels mattered for oil exporters; while price fall was more dramatic, oil volumes also contracted.

### VI. Findings from simulations and exposure analysis (high-level summary described)
- Short-run impacts (examples reported in the paper’s overview):
  - Maghreb countries: "a 1 percent fall in GDP corresponds roughly to a 2¾ percent reduction in non-oil exports in the short run."
  - CCA countries: linked to Europe but "more exposed to shocks in the BRICS countries."
- Historical revision impacts:
  - Downward revisions to global growth for 2011–14 estimated to have "cost the CCA countries four months of non-oil exports" and been "similarly costly for the Maghreb countries."
- Sectional outline for simulations:
  - Section three: regression estimates of short-run and long-run responses.
  - Section four: estimates of global shocks (acute euro area crisis, moderate European growth, slower BRICS) using regression results combined with WEO-predicted slowdowns.
  - Section five: conclusions covering implications for aggregate demand and external balances, reasons estimates may be too low, and suggestions for richer export demand and supply frameworks.

*Source: _wp1480 - References................................................................................................28*

### 22.      Non-oil exports, which we emphasize in this paper, fell precipitously during the

### _wp1480 - 22.      Non-oil exports, which we emphasize in this paper, fell precipitously during the

### Collapse of non-oil exports during the Lehman crisis
- From July 2008 to February 2009, MCD’s non-oil exports were cut in half.
- Regional declines in that period:
  - MENAP oil exporters: fell by 55 percent
  - MENAP oil importers: fell by 35 percent
  - CCA: fell by 41 percent

### Why the goods trade response was so large
- Global trade volumes fell by many times the fall in global output; MCD export volumes fell by much more than output in its trading partners.
- Gravity models imply a trade response to output of unity in the long run; short-run elasticities can exceed unity.
- Factors highlighted:
  - Demand composition effects
    - Contraction in final demand was asymmetric across sectors; demand for durables fell by considerably more than demand for other goods or services.
    - During 2009, the average across 34 countries of the change in durables was almost five times the average change in GDP.
    - Since the mid 1990s, the global average elasticity of durables to GDP has been about three.
    - Because durable goods have a larger weight in trade flows than in final demand, asymmetrical sectoral demand changes caused global trade to fall by more than aggregate demand.
  - Intermediates
    - Majority of global goods trade is in intermediate goods; intermediates are only indirectly linked to final demand and have different shares in durables versus other demand components.
    - Bems and others (2010) suggest intermediates played a relatively small role partly because the share of intermediates in durables is smaller than the share of final goods in durables.
    - Contrasting findings: Altomonte and Ottaviano (2009) find trade within global supply chains relatively resilient; Levchenko, Lewis and Tesar (2009) find US trade fell by more in sectors with strong vertical linkages.
  - Trade costs
    - Crises have a significant effect on trade even after controlling for GDP, consistent with a rise in trade costs (e.g., murky protectionism, lack of trade finance).
    - Increase in incidences of protectionism was modest during the crisis.
    - Trade finance was not withdrawn dramatically during the crisis, in large part due to concerted policy-maker efforts.

### Services trade resilience
- Services trade is more resilient than goods trade.
  - Borchert & Mattoo (2009): services may be less sensitive to the business cycle because demand for many international services is less cyclical, generally can’t be stored, are less discretionary parts of businesses, and are less dependent on external finance.
  - Bems et al (2010): demand for all services fell by less than other sectors of the economy.

### Recent developments (post-crisis through mid-2013)
- After initial recovery from the global financial crisis, exports have stagnated since 2011.
- Despite growth in 2012 from Asia, the recession in Europe dragged down exports.
- MCD goods exports to the world declined by 7 percent in January – June 2013 relative to the same period in 2012.
- Non-petroleum imports from MCD countries have declined or remained unchanged since the second half of 2011.
- Recent data show an increase in demand for non-petroleum goods, mainly driven by stronger imports from the euro area.
- Intra-regional variation:
  - MENAP oil importers’ non-oil exports to Europe fell by a third between mid-2011 and mid-2012 on account of the recession in Europe and have not yet recovered to pre-Lehman levels despite a recent rise.
  - CCA exports to Europe have stagnated since mid-2009; strong growth to the BRICS in 2012 has been reversed, largely due to falling sales to Russia, such that non-oil exports to the world have not reached pre-Lehman levels.
  - MENAP oil exporters experienced a steady rise in non-oil exports until the start of 2013.

### Regression framework and key estimation details
- Estimation approach: Autoregressive Distributive Lag (ARDL) specification for all goods, non-petroleum goods, and services.
- Core ARDL representation includes:
  - c: constant
  - log(exports) by country j in year t
  - log(GDP) in exporter in year t
  - ROW GDP: GDP in the rest of the world, the sum of all countries except exporter j weighted by distance from the exporter
  - Short-run elasticity of exports with respect to ROW GDP is the main coefficient of interest
  - Long-run elasticity is derived from short-run and lagged coefficients
  - Stochastic error term interpreted as measurement error in trade flows
- Estimation choices:
  - ARDL least squares estimates including exporter fixed effects form the basis for simulations.
  - Alternative specifications and estimation methods (including GMM and first differences) were used; results are broadly robust.

### Estimated elasticities and interpretation
- Estimated historical short-run elasticity for all goods:
  - Short-run elasticity for all goods including oil: 2.02 (column 1 of Table 2)
  - GMM-based estimates are slightly lower than 2; first-differenced estimates also yield estimates of about 2.
- Non-petroleum exports:
  - Short-run elasticity estimate for non-petroleum goods exports: 3.3 (column 2 of Table 2)
  - One standard error confidence bands approximately 2.3 and 4.3
  - Alternative ARDL estimates vary from 3.1 to 4.2; first-differenced estimates available on request are slightly lower.
  - Interpretation: petroleum products act like intermediates and were relatively less sensitive; oil is globally traded making gravity less appropriate for oil.
- Services:
  - Short-run elasticity of service exports to trading partner GDP: 1.17 (column 3 of Table 2)
  - Range between 0.94 and 1.37 (Table 3)
  - Supplementary regressions show services value-added changes by less than one-for-one with GDP while industrial value added changes by more.
- Long-run elasticities:
  - Long-run elasticities approach unity for goods exports in preferred specifications.
  - Services long-run elasticity is less than unity in these specifications.
- Relation to other findings:
  - Estimates of 2 for all goods are in line with unpublished estimates behind chapter IV of IMF (2010).
  - Historical aggregate world trade response to world GDP: 1.77 since the 1960s.
  - Aggregate exports from the MENA region alone: 1.71 since the mid 1990s (Freund, 2009).
  - Evidence suggests elasticities may be rising over time and higher during substantial downturns; 2009 collapse in world trade was four times that of world GDP, with Bems et al (2010) attributing 70 percent to demand changes implying an elasticity of 2.8.
- Durables and composition effects:
  - Durables account for a large component of the exports response to GDP.
  - Subsequent analysis indicates an elasticity of exports with respect to durables demand alone in trading partners of about a quarter (all goods) to almost a half (non-petroleum).
  - Durables comprise approximately 10 percent of GDP; the change in durables was approximately ten times the change in the rest of GDP.
  - Regressions on aggregate GDP do not lead to systematic underestimates; the paper uses GDP elasticities because projections of Euro area impacts on GDP are easier to obtain than on demand sub-components.
- Elasticities across subregions and importers:
  - No robust statistically significant evidence that elasticities differ systematically in the MENAP or CCA or across importing regions.
  - No robust evidence of differences for particular importer-exporter pairs.

### Simulations of global GDP shocks on non-oil exports
- Interpretation from regression results:
  - An evenly-distributed fall in global GDP of 1 percent would reduce MCD non-petroleum exports by 3.3 percent in the short run and 1.06 percent in the long run.
- Geographic distribution matters:
  - For exporters to Europe, a 1 percent fall in aggregate global GDP matters more if concentrated in Europe.
- Simulation design:
  - Takes into account uneven distribution of GDP growth and unequal export exposures to each region.
  - Considers scenarios: two scenarios for weaker euro area growth, a slowdown in the BRICS, and revisions to global growth projections for 2011-14.
- Focus rationale:
  - Focus on non-oil exports because these are more appropriately captured by the gravity model and bilateral geographical data are available.
  - Oil exports are less dependent on shocks to particular countries or regions because oil is generally traded on global markets; adjustments occur largely through oil prices and production is often at or near capacity.
  - Discussion of services exports is limited because bilateral data are not available.

*Italic: Source — Excerpt from the IMF working paper content unit provided.*

### 39.      We combine the vector of contractions in key trading partner GDP with the share of

### _wp1480 - 39.      We combine the vector of contractions in key trading partner GDP with the share of

### Methodology and empirical framework
- Short-run impact specification (aggregated across goods and destinations):
  - Export percent change for exporter j at time t for good g: represented as a function of
    - short run coefficient for good g,
    - the share of j’s exports of good g exported to destination k,
    - the percentage change in GDP (the revision or shock relative to the baseline) in export destination k.
  - Short-run coefficients are calculated based on cumulative impacts for up to two years in the scenarios and up to four years for the actual downward revision to growth prospects. These are best interpreted as an approximation of the cumulative initial impacts of the shocks experienced over the period, but they will dissipate.
- Long-run analogue:
  - Includes contemporaneous trading-partner output term coefficient, coefficient on lagged trading-partner output, and coefficient on lagged exports.
  - Although the full path beyond four years is not simulated, the presented long-run impacts should be interpreted as the eventual long-run impact of the shocks experienced during the period.
- Trade exposures:
  - Based on all countries in the world, subject to data availability.
  - GDP shocks to regions are approximated by shocks to GDP in a subset of countries in the IMF’s global macroeconomic models.
  - Europe: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, and the United Kingdom.
  - BRICS: Brazil, Russia, India, China, and South Africa.
  - Asia: Indonesia, Japan and Korea.
  - Other countries: Argentina, Canada, Australia, Mexico and Turkey.
  - No MCD countries are included in the regional approximations.

### A. Euro Area shocks — scenarios and export impacts
- Scenario 1: Weak growth in Europe (EUROMOD results, April 2013 WEO)
  - Europe’s growth could fall by ½ percent per year over 5 years due to rising risk premia and fiscal tightening, lower confidence and weaker private investment.
  - European GDP would be 1.1 percent lower than the baseline in the second year such that the cumulative loss over 2 years would be 1.7 percent.
  - Cumulative global GDP loss over two years would be ½ percent.
- Short-run and long-run non-oil export impacts (Table 4 summarized)
  - For MENAP region (short run): non-oil exports
    - Year 1: -0.4
    - Year 2: -0.9
    - Cumulative: -1.3
  - MENAP oil importers (short run): Year 1: -0.6; Year 2: -1.5; Cumulative: -2.1
  - MENAP oil exporters (short run): Year 1: -0.3; Year 2: -0.6; Cumulative: -0.9
  - GCC (short run): Year 1: -0.1; Year 2: -0.3; Cumulative: -0.5
  - Maghreb (short run): Year 1: -1.3; Year 2: -3.1; Cumulative: -4.4
  - Mashreq (short run): Year 1: -0.6; Year 2: -1.5; Cumulative: -2.1
  - CCA (short run): Year 1: -0.5; Year 2: -1.0; Cumulative: -1.5
  - Cumulative (Total World) examples:
    - MENAP total: -0.5 (Year1), -1.0 (Year2), -1.5 (Cumulative) in the “Total (World)” column.
    - Maghreb total: -1.4 (Year1), -3.1 (Year2), -4.5 (Cumulative) in the “Total (World)” column.
  - Long-run impacts are generally small; examples:
    - MENAP long run cumulative: -0.4
    - Maghreb long run cumulative: -1.4
    - CCA long run cumulative: -0.6
- Sub-regional variation:
  - Differences across MCD sub-groups are driven solely by differences in the geographical distribution of exports (export shares), not by different elasticities.
- Parameter uncertainty (confidence bands):
  - For MENAP cumulative impact one standard error above estimate: -1.9 percent; lower confidence band: -1.0 percent.
  - Maghreb range: -3.1 to -5.8 percent.
  - CCA range: -1.3 to -2.3 percent.
- Scenario 2: Re-emergence of financial stress in the euro area (GIMF, October 2012 WEO)
  - Europe GDP: 2.8 percent lower than baseline in the first year; second year also 2.8 percent below baseline; cumulative output loss of 5.6 percent over two years.
  - Global GDP: falls by 1.1 percent in the first year; cumulative output loss of 2.2 percent over two years.
- Short-run and long-run non-oil export impacts under the acute euro-area shock (Table 5 summarized)
  - MENAP short run (Total World cumulative): Year 1: -3.0; Year 2: -2.9; Cumulative: -6.0
  - MENAP oil importers (Total World cumulative): Year 1: -4.4; Year 2: -4.3; Cumulative: -8.8
  - MENAP oil exporters (Total World cumulative): Year 1: -2.3; Year 2: -2.3; Cumulative: -4.6
  - GCC (Total World cumulative): Year 1: -1.8; Year 2: -1.8; Cumulative: -3.6
  - Maghreb (Total World cumulative): Year 1: -7.7; Year 2: -7.6; Cumulative: -15.4
  - Mashreq (Total World cumulative): Year 1: -4.1; Year 2: -4.1; Cumulative: -8.2
  - CCA (Total World cumulative): Year 1: -3.7; Year 2: -3.6; Cumulative: -7.3
  - Long-run totals are much smaller; examples:
    - MENAP long run cumulative: -1.9
    - Maghreb long run cumulative: -4.9
    - CCA long run cumulative: -2.3
- Elasticities implied by euro-area scenarios:
  - Short-run elasticity of non-oil exports with respect to European GDP of approximately unity for MENAP countries (0.9-1), with an elasticity of 2¾ in the Maghreb.
  - CCA elasticities: approximately 1.1-1.3.
  - Note: elasticities vary slightly across scenarios because export responses are not perfectly linear.
- Services and oil export values:
  - Assuming services export shares to Europe equal those for non-oil goods:
    - First-year impact for CCA services: -1¼ percent.
    - First-year impact for MENAP services: -1 percent.
    - If Maghreb service exposures equal non-oil goods: first-year services impact: 2¾ percent.
  - GIMF model estimates oil price would fall about 10 percent in the first year under the acute euro-area stress scenario; oil export values would fall accordingly.

### B. Emerging Market (BRICS) shock — scenario and export impacts
- Scenario description (April 2013 WEO):
  - Investment being 10 percent below forecast in the BRICS and capital outflows from other emerging markets would reduce BRICS output by 3½ percent in the first year and by more than 4 percent in the second year.
  - Due to spillovers, GDP loss in non-BRICS regions (including Europe) would be approximately 1 percent in the first year.
- Short-run and long-run non-oil export impacts (Table 6 summarized)
  - GDP shock: Year 1: -3.5; Year 2: -4.1; Cumulative: -7.6 for BRICS; Indirect (other than BRICS) Year 1: -1.1; Year 2: -1.2; Cumulative: -2.4; Total (World) Year 1: -2.0; Year 2: -2.3; Cumulative: -4.2.
  - MENAP (Total World cumulative): Year 1: -2.9; Year 2: -3.3; Cumulative: -6.2
  - MENAP oil importers (Total World cumulative): Year 1: -3.1; Year 2: -3.5; Cumulative: -6.6
  - MENAP oil exporters (Total World cumulative): Year 1: -2.8; Year 2: -3.2; Cumulative: -6.0
  - GCC (Total World cumulative): Year 1: -3.0; Year 2: -3.5; Cumulative: -6.5
  - Maghreb (Total World cumulative): Year 1: -3.4; Year 2: -3.8; Cumulative: -7.2
  - Mashreq (Total World cumulative): Year 1: -2.5; Year 2: -2.8; Cumulative: -5.4
  - CCA (Total World cumulative): Year 1: -5.7; Year 2: -6.7; Cumulative: -12.4
  - CCA oil importers (Total World cumulative): Year 1: -4.1; Year 2: -4.7; Cumulative: -8.8
  - CCA oil exporters (Total World cumulative): Year 1: -6.0; Year 2: -7.0; Cumulative: -13.1
  - Long-run totals are smaller; examples:
    - MENAP long run cumulative: -2.0
    - CCA long run cumulative: -4.0
- Elasticities:
  - Short-run elasticity for CCA countries: approximately 1½.
  - Long-run elasticity for CCA countries: approximately ⅓ (mainly because of CCA oil exporters).
  - MENAP short-run elasticity: about ¾; long-run elasticity: about ¼.
- Oil revenues and services:
  - EUROMOD analysis suggests oil prices could fall by 20 percent in the first year.
  - Services exports could fall by 2⅓ percent in the first year under a uniform global GDP loss assumption.
  - Assuming the same geographical exposures as non-oil goods:
    - Services impact for many MENAP countries would be roughly the same as non-oil goods.
    - Services impact for the CCA countries would be about 4 percent.

### C. Downward revisions of the global outlook (realized/forecast revisions)
- Context (October 2013 WEO vs October 2010 WEO):
  - Global GDP growth estimates/projections were on average 1 percent per annum lower in the more recent edition, implying a cumulative GDP loss of 9½ percent over 2011-2014.
  - Substantial contributions to the downward revision:
    - Europe: cumulative GDP loss of 10½ percent for 2011-2014 (despite an upward revision for 2011).
    - BRICS: cumulative GDP loss of 16½ percent for 2011-2014 (implies about 2 percent growth per annum on average lower).
- Implications for MCD non-petroleum exports (Table 7 summarized)
  - CCA cumulative short-run loss of exports in 2011-2014: 32.7 percent of a year’s exports (equivalently 4 months’ exports), roughly an average loss of export growth of 3 percent in each of the four years.
    - Regression uncertainty range for CCA short-run loss: 23 to 43 percent.
    - Long-run loss for CCA (barring further downward revisions): 7 percent.
  - MENAP cumulative short-run loss: 18.7 percent (range 13-24 percent).
  - Maghreb cumulative short-run loss: 31.2 percent (mostly attributable to downward revisions in Europe).
- Table 7 selected figures (cumulative loss, 2011-2014)
  - GDP loss (columns by region): Europe: -10.4; BRICS: -16.6; World: -9.4
  - Short run (Total World cumulative):
    - MENAP: -18.7
    - MENAP oil importers: -22.2
    - MENAP oil exporters: -17.0
    - GCC: -16.8
    - Maghreb: -31.2
    - Mashreq: -19.6
    - CCA: -32.7
    - CCA oil importers: -24.4
    - CCA oil exporters: -34.1
  - Long run (Total World cumulative):
    - MENAP: -6.0
    - MENAP oil importers: -7.1
    - MENAP oil exporters: -5.5
    - GCC: -5.4
    - Maghreb: -10.0
    - Mashreq: -6.3
    - CCA: -10.5
    - CCA oil importers: -7.8
    - CCA oil exporters: -11.0

### Key takeaways and implications
- Exposure channel:
  - Export losses across MCD countries in downside scenarios are driven primarily by the geographical distribution of exports (export shares to affected regions) rather than by differing elasticities across sub-regions.
- Magnitude of impacts:
  - Euro-area shocks can produce acute short-run export losses, especially for the Maghreb (first-year estimated impacts up to -7½ percent and two-year cumulative impacts exceeding -15 percent under the acute stress scenario).
  - BRICS slowdown scenarios produce particularly large impacts on the CCA (first-year non-oil export declines up to -6 percent and two-year cumulative losses ~ -13 percent for CCA oil exporters).
  - Realized downward revisions to global growth (2011-2014) imply very large cumulative short-run export losses: CCA ~32.7 percent; Maghreb ~31.2 percent; MENAP ~18.7 percent.
- Secondary channels:
  - Indirect effects via spillovers (e.g., Europe → Asia → MCD intermediates) matter and are captured by reduced-form GDP-based exposure measures; they complement structural input-output approaches.
- Sectoral implications:
  - Services exports and oil export values would decline alongside non-oil goods exports in the scenarios, with estimated oil price falls of about 10 percent in the acute euro-area stress scenario and about 20 percent in the BRICS slowdown scenario.

*Source: Excerpt from IMF working paper chapter (content unit: _wp1480 - 39).*

### 57.      A difficult external environment has increased the challenges of transition. Since

### A difficult external environment has increased the challenges of transition.

### External shocks and export impacts
- Since 2011, many countries in the region have been undergoing a process of difficult political transition amid regional uncertainty.
- Global slowdowns have reduced the scope for export-led recovery, providing stronger than expected headwinds, especially for the Maghreb countries.
- Estimates indicate the worse-than-expected slow-down in Europe and emerging markets has already had a negative impact on non-petroleum exports from MCD.
- Tourism has suffered from regional uncertainty and weak global demand.
  - Assuming services have the same geographical distribution as non-oil exports, the MENAP countries may have lost about 6½ percent in 2011-2014.
  - The CCA countries have an estimated cumulative loss of 11½ percent for services under the same assumption.

### Quantified export effects and channels
- Non-oil exports halved after the collapse of Lehman Brothers; they rebounded for many MCD countries but recovery was halted in 2011.
- Downward revisions to trading-partner GDP growth may have slowed annual non-oil export growth by an estimated 2 percent per year.
- Cumulative losses for 2011–14 in the Maghreb countries may amount to 3 percent per year, mostly because of revisions to the outlook for Europe.
- Downward revisions in the BRICS countries in 2011–14 have been substantial enough to cost the CCA countries about four months of non-oil exports.
- Scenario elasticities and impacts:
  - Maghreb non-oil exports could fall by 2¾ percent for every percentage point shock to GDP in Europe.
  - In an acute intensification of financial stress in the euro area, non-oil exports from the Maghreb could be 7½ percent lower than the baseline in each of the first two years following the shock.
  - The CCA countries have an elasticity of about 1¼ with respect to Europe and Russia/China linkages.
  - For a BRICS slowdown scenario, cumulative export losses for CCA could be 12 percent over two years, implying an elasticity with respect to the BRICS GDP shock of about 1½.
  - The BRICS elasticity for MENAP countries is about half that for CCA, attributable roughly equally to direct BRICS exposures and indirect exposures via Europe.

### Services, oil, and other transmission mechanisms
- Services exports are more resilient to trading partner GDP than non-oil goods exports.
  - On the assumption that services exports have the same geographical distribution as non-oil goods exports, the responsiveness of services to realized and potential GDP shocks is about one third that of non-oil goods.
- Oil export volumes would also fall, but probably by less; however, major producers could reduce oil export volumes in response to a negative shock to global oil demand.
  - Depending on the nature of the supply response, all oil exporters would see export values fall as a result of lower oil prices.
- Other transmission channels:
  - Remittances are important for the region’s oil-importing countries.
  - Financial links are, with some exceptions, limited.
  - Calibrations suggest:
    - Growth ½ percent below baseline in Europe would reduce MCD GDP by less than 0.1 percent in the first year.
    - A BRICS shock (of about 3½ percent) would result in a GDP loss of about ½ percent in the first year for MCD oil importers.
    - EMERGMOD indicates MCD oil exporters’ GDP loss would be slightly above 1 percent.
    - Cashin and others (2012) suggest the effect for MENA oil exporters only would be about ¾ percent, implying higher effects on the CCA oil exporters.

### Limitations of estimates and sources of understatement
- The estimates are conservative; impacts would be larger if:
  - The export response matched that of the previous crisis rather than the average trade responsiveness of recent history. The econometric estimate of the non-oil export response to trading partner GDP is 3.3 (average since the mid 1990s), whereas a Lehman-like response could be larger.
  - Lower MCD GDP reduced intra-regional trade; results are best interpreted as the external-shock impact on exports and do not fully capture intra-regional export declines (important for many Mashreq and GCC countries).
  - Small additional falls induced by other parts of the world are not explicitly modeled because of data deficiencies.
- Estimates do not allow for price competitiveness:
  - The gravity literature typically does not control for exchange rate or price competitiveness effects.
  - The paper emphasizes geographical distribution of exports using global macroeconomic model GDP shocks.
  - Future work could specify export demand and supply as functions of GDP, prices (proxied by the effective exchange rate), and other variables to refine transmission estimates.

### Country vulnerabilities and policy-relevant implications
- A given change in exports has the biggest effects on countries with high non-oil export-to-GDP ratios and limited capacity to absorb external sector shocks.
  - Oil exporters generally have larger export-to-GDP ratios than oil importers, but only a small ratio of non-oil exports to GDP.
  - Most oil exporters could withstand shocks described here, albeit with damage to fiscal and external balances via lower oil prices.
  - For CCA oil importers, non-oil goods and services exports are about a quarter of GDP; many have not adequately rebuilt buffers after the global financial crisis.
  - For MENAP oil importers, non-oil goods and services exports amount to approximately one third of GDP; many have run down reserves and currently have output gaps.
- As a result, global GDP shocks and resulting export losses could have important and untimely negative effects on aggregate demand and reserves for vulnerable countries.

*IMF working paper content excerpt*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1480.pdf_